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Sell at Split-Off or Process Further

1.Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $10 per pound. A buyer of HS asked Bozo to process HS further into CS compound. If HS were processed further, it would cost $30,600 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $59 per pound.

Required:

a. What is the contribution to income from selling the 14,000 pounds of HS at split-off? $______

b. CONCEPTUAL CONNECTION: What is the contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS? $_____

Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $12 each. Zion uses 4,700 units of Component K2 each year. The cost per unit of this component is as follows:

Direct materials	$7.45
Direct labor	2.38
Variable overhead	1.26
Fixed overhead	2.00
Total	$13.09

The fixed overhead is an allocated expense; none of it would be eliminated if production of Component K2 stopped.

Required:

2. What are the alternatives facing Zion Manufacturing with respect to production of Component K2?

Make the component in-house or to buy it from BryceMake the component in-house or to sell it from Bryce

List the relevant costs for each alternative. If required, round your answers to the nearest cent.

	Total Relevant Cost
Make	$______
Buy	$_____
Differential Cost to Make	$________